The consumer staples sector, the sixth-largest sector weight in the S&P 500, has been rightfully derided as one of this year’s worst-performing groups.
The Consumer Staples Select Sector SPDR (NYSE: XLP), the largest exchange traded fund tracking the sector, and other traditional cap-weighted staples ETFs are sporting year-to-date losses of close to or more than 8 percent.
While large-cap consumer staples stocks are struggling, the opposite is true of small-cap equivalents. The Invesco S&P SmallCap Consumer Staples ETF (NASDAQ: PSCC), the small-cap answer to XLP, was one of just five ETFs to hit all-time highs on Thursday, elevating its year-to-date gain to 10.25 percent.
PSCC follows the S&P SmallCap 600 Capped Consumer Staples Index, which features companies that are “are principally engaged in the business of providing consumer goods and services that have non-cyclical characteristics, including tobacco, textiles, food and beverage, and non-discretionary retail,” according to Invesco.
Why It’s Important
PSCC’s leadership over large-cap equivalents is not altogether surprising when considering small-cap ETFs are dominating large-cap rivals by historically wide margins this year. Like other small-cap funds, PSCC is benefiting from a tilt toward domestic revenue streams. Staples names in the S&P SmallCap 600 Index generate a slightly higher percentage of their revenue in the U.S. than do consumer staples members of the S&P 500.
The average market capitalization of PSCC’s 20 holdings is $1.65 billion, putting the fund firmly in mid-cap territory. Additionally, PSCC has been relatively immune to the weakness in tobacco stocks this year because the fund devotes just 4.48 percent of its weight to the tobacco sub-industry.
“Consumer staples have shown a strong small cap premium despite similar portions of revenue generated domestically despite size,” said S&P Dow Jones Indices. “This seems to be driven mainly by fear of uncertainty in